Gov. Inslee budget office is asking agencies to show what 15 percent cuts would look like

Washington’s latest revenue forecast said $387 million in extra state revenue is expected over the next three years, but state costs are rising, too - including more than $1.5 billion for public schools that comes due next year as a result of the McCleary school funding court case.

The latest Washington state revenue forecast shows government revenues are increasing but not quickly enough to avert preparations for possible budget cuts next year.

Gov. Jay Inslee’s budget director sent out instructions to agency leaders last Friday telling them to prepare for what 15 percent spending reductions in “unprotected” programs could look like in the 2015-17 budget cycle.

It could end up being a perfunctory exercise if lawmakers find extra sources of revenue. But Inslee legally must submit a budget in late December that relies on existing tax sources, and his budget office wants to see what agency priorities look like and what choices he might have to make.

“There are a lot of variables that are going to change between now and when the budget comes out” in December, state budget director David Schumacher said Wednesday. Among those variables is another revenue forecast in November that will help the Office of Financial Management make final adjustments to the two-year spending plan.

The cuts – which would hit so-called unprotected programs – would not affect K-12 school allotments, pensions, debt payments or federally mandated Medicaid benefits over which the state has no control. But they could hit higher education, prison operations and other major functions of government.

A revenue update this week showed that state officials can expect about $387 million more in revenue over the next 36 months than forecasters had predicted in February. But neither that forecast nor a predicted $25 million drop in the state’s expected costs of running schools, health care programs and prisons are enough to bridge a gap that Schumacher estimates at between $700 million and $1 billion in the next budget cycle.

Lawmakers also face a need to put $1.5 billion to $2 billion more – according to Schumacher – into K-12 school funding to meet the state Supreme Court order in the McCleary case.

“The sad fact is that to balance this with all cuts is going to mean real cuts to services people dependent on services,” Schumacher said. He said people who receive mental health services or are disabled are among those who could be affected. Universities and prisons also would be hit.

The budget exercise is on top of a request by OFM that agencies provide up to $40 million in efficiency gains over the next year through Lean management and other performance improvements.

State Corrections Secretary Bernie Warner sent agency employees a memo last week explaining that 15 percent cuts would amount to more than $200 million in the prison and community supervision systems, which already shut facilities and cut millions of dollars during the Great Recession.

“It is important to understand we are still in a very preliminary stage in the budgeting process and don’t have any specifics as to how the budget crisis will affect DOC operations,” Warner’s memo said. He added that “such significant reductions can only occur through policy reforms that reduce caseload,” meaning those in prison or supervised in communities.

Teamsters Local 117 which represents prison employees posted a statement on its website expressing worry that public safety could be jeopardized and that it would be hard to make cuts of that size without closing some prisons.

Schumacher called the 15 percent reduction a “very conservative, very difficult number.”

“I would imagine that is more than folks are going to take. But one, if the economy gets worse, it’s possible. And two, if there are places we decide we can’t even cut near 7 or 8 percent for some reason, you have to do bigger cuts in other areas,” he explained. “We are trying to build a map for the governor to see what it would take to get there and see if he can accept those.’’